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Financial Accounting

THIRTEENTH EDITION

Williams Haka Bettner Carcello

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Chapter

1
Accounting
Information for Decision Making

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Learning Objective

To discuss accounting
as the language of
business and the role of
accounting information
in making economic
decisions.

LO1
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The
accounting
process

Accounting
“links” decision
makers with Accounting
Economic
economic
activities information
activities  and
with the results of
their decisions.

Actions
(decisions) Decision
makers
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Types of Accounting Information

Financial Tax

Managerial

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Learning Objective

To discuss the significance of

accounting systems in generating
reliable accounting information,
and understand the five
components of internal control
per COSO’s Internal Control—
Integrated Framework.

LO2
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Accounting Systems
An accounting system consists of the personnel,
procedures, technology, and records used by an
organization to develop accounting information
and to communicate this information to decision
makers.

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Information System

Information Financial Decisions

Users Information Supported
Investors Provided Performance
Creditors Profitability evaluations
Managers Financial Stock
Owners position investments
Customers Cash flows Tax strategies
Employees Labor relations
Regulators Resource
-SEC allocations
-IRS Lending
-FTC decisions
Borrowing
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Basic Functions of an Accounting
System

 Interpret  Classify
and record similar
business transactions
transactions. into useful  Summarize
reports. and
communicate
information to
decision
makers.

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Components of Internal Control

Control
Environment

Risk
Assessment

Control
Activities

Information and
Communication

Monitoring

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Learning Objective

To explain the importance

of financial accounting
information for external
parties—primarily
investors and creditors—
in terms of the objectives
and the characteristics of
that information.

LO3
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External Users of Accounting
Information

•Owners
•Creditors
•Potential investors
•Labor unions
•Governmental agencies
•Suppliers
•Customers
•Trade associations
•General public
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(Specific)
Provide information about economic Objectives
resources, claims to resources, and
changes in resources and claims.
of
External
Financial
Provide information useful in
Reporting
assessing amount, timing and
uncertainty of future cash flows.

Provide information useful in making

investment and credit decisions.
(General)
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Objectives of External Financial
Reporting

Balance Sheet

Income Statement
The primary
Statement of Cash Flows
financial
statements.

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Characteristics of Externally
Reported Information
A Means to
an End
Usefulness Broader than
Enhanced via Financial
Explanation Statements

Based on
Historical in
General-Purpose
Nature
Assumption

Results from Inexact and

Approximate Measures
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Learning Objective

To explain the importance

of financial accounting
information for internal
parties—primarily
management—in terms of
the objectives and the
characteristics of that
information.

LO4
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Users of Internal Accounting
Information

 Board of directors
 Chief executive officer
(CEO)
 Chief financial officer (CFO)
 Vice presidents
 Business unit managers
 Plant managers
 Store managers
 Line supervisors

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Owners

Typical
Board of
Directors Simple
Organization
Chief Executive
Officer Chart
(CEO)

Business V.P. V.P. Chief

V.P
Unit Human Information Financial
Ethics
Managers Resources Services Officer (CFO)

Plant Plant
Managers Managers Controller Treasurer

Plant Plant
Accountants Accountants

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Objectives of Management
Accounting Information

To help achieve
goals and missions

To help evaluate
and reward
decision makers

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Characteristics of Management
Accounting Information

Timeliness
Identify
A Means to Decision
an End Maker

Measures of Oriented
Efficiency and Toward
Effectiveness Future

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Learning Objective

To discuss elements of
the system of external
and internal financial
reporting that create
integrity in the reported
information.

LO5
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Integrity of Accounting Information

Institutional Features
Generally Accepted Accounting Principles (GAAP)
Financial Accounting Standards Board
International Accounting Standards Board
Securities and Exchange Commission
Public Company Accounting Oversight Board
Audits of Financial Statements
Legislation

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Learning Objective

To identify and discuss

several professional
organizations that play
important roles in
preparing and
communicating
accounting information.

LO6
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Integrity of Accounting Information

Professional Organizations
American Institute of Certified Public Accountants
Institute of Management Accountants
Institute of Internal Auditors
American Accounting Association
Committee of Sponsoring Organizations of the
Treadway Commission (COSO)

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Learning Objective

To discuss the
importance of personal
competence,
professional judgment,
and ethical behavior on
the part of accounting
professionals.

LO7
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Integrity of Accounting Information

Competence, Judgment and Ethical Behavior

Certified Public Accountants (CPAs)
Certificate in Management Accounting (CMA)
Certificate in Internal Auditing (CIA)

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Learning Objective

To discuss various
career opportunities in
accounting.

LO8
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Careers in Accounting

Public Accounting
Management Accounting
Governmental Accounting
Accounting Education

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End of Chapter 1

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